Friday, March 25, 2011
An NBA hard cap is nothing new
By Henry Abbott
A week ago Billy Hunter, executive director of the National Basketball Players Association, explained that -- despite what you may have heard about franchise tags, age limits and superstars flocking together -- the real issue driving the ongoing collective bargaining is a hard salary cap.
As in: The NBA wants one, and the union really does not.
The rhetoric is borderline religious -- which can be scary if you're among those who prefers basketball to lockouts.
Hunter's reasoning is nuanced. "If you have a hard salary cap," Hunter explains, "all these other things flow from it. If you have a hard salary cap, you can't have guaranteed contracts."
Hunter offers an example: "Max contracts would be affected by a hard cap. In their proposal, the cut that they're proposing players would take -- 40 percent -- they'd have to reduce max contracts. The cap would be such that we'd go from a current soft cap of about $58 million, down to a hard cap of about $45 million. In order to field a team of 12-15 players, you wouldn't have sufficient money without reducing max contracts."
You see what he's getting at there? You tell each team they only pay all players a set amount, and all of a sudden Kobe Bryant and LeBron James have big red lines drawn through the most important pages of their contracts. Also, would GMs offer anybody long-term contracts if they thought that in the latter years an ineffective player might destroy the team's chances of winning anything? At least now teams know that if things go south you can at least consider going over the cap to execute a plan B. Who's to say this wouldn't have a massive chilling effect on spending generally?
Hunter makes sense. A hard cap would obviate many of the central benefits players enjoy now, including the "guaranteed" part of many contracts, especially the big ones.
The paper it's printed on
Gilbert Arenas makes about $17 million to sit on Orlando's bench. Kevin Garnett is making almost $19 million. Joe Johnson's big deal will pay him close $25 million in the final year.
These numbers are haggled over by agents and owners, reported in the media, and bandied about by those of who'd like to take home that kind of cake.
However -- and this comes as a surprise to lots of people, even some players -- the players would like to take home that much cake, too. As in, the numbers on those contracts are not the amounts players actually earn. They're the maximums they could earn, if things go their way.
They're pretty close, most years. But they are not the real deal.
Amazing, huh? Your agent could have negotiated you a deal, and it will say right there in black and white, on a document you and the owner have signed, that you're owed $17,522,375 for this season. But at the end of the year, you may find you have in fact been paid more like $16,646,256.
Where's the rest? In your owner's silk-lined pocket.
In 1998, after a lockout, the union and the NBA agreed to phase in a new system where players would receive a fixed percentage of the league's "basketball-related income." That system kicked in in 2001-2002, and since 2004-2005 the percentage has been locked at 57 percent.
Since then, all NBA players, as a group, have been paid 57 percent, every year (with one exception we'll get to in a minute). Think about that. If Teen Wolf arrived from outer space or wherever he hangs out, and signed a max deal with the Kings mid-season, he'd take home a ton of money. But his paychecks would still come out of that 57 percent. In other words, Teen Wolf's money would come from other players.
Teen Wolf is only increasing the total money for players if he can move the needle for the league's total basketball-related income.
In recent years, that pretty much means players, together, make a little over $2 billion. Everyone is paid out of that pot. All the player and owner negotiations, all those signings and extensions and draft picks and 10-day contracts and all that, they're all to determine not exactly how much everyone will be paid, but instead what chunk of that $2 billion comes from this owner, and what chunk of that goes to which player.
But they're not going to change that total number, which is just about set in stone.
The audits are starting soon
Players are paid all year, but, of course, the season's "basketball-related income" can't be known until the teams and the league have gone about the business of making and counting their income. It depends on things like how many tickets they sell, and how much money they get from their local TV stations.
That creates an almighty bookkeeping hassle.
Here's how they handle it. Teams hold back 8 percent of player contracts, all season. Players are living on less than they negotiated to earn. The rest is saved in an escrow account, and there's a lot of it -- as a rough guide, 8 percent of $2 billion is $160 million.
Every spring, auditors visit all 30 NBA teams and go through the books. Hard. (It starts next month.) And the auditors determine, based on a formula spelled out in detail in the CBA, precisely how much the league made this year in "basketball-related income." And then somebody types that number into a calculator bigger than mine (which only has eight digits and is not built for CBA talk) and multiplies by .57.
Then they take that $160 million or so that's in the bank and spread it around to whoever has to get it to make sure that the players end up with 57 percent, and the owners 43 percent. Some years just about all of that money goes to the players. Other years it mostly goes to the owners.
The owners won a lot of the little fights over, for instance, how basketball-related income is defined. But the players won a special protection: They will not make less than that 57. The owners, in theory, could make less, but the rest of the CBA, with its rookie contracts, salary cap, luxury tax, controlled raises and the like is carefully designed to prevent that.
And it's effective. In 2008-2009, the players managed to earn 57.4 percent of basketball-related income by collectively negotiating a ton of big contracts. But for that, they have made 57 percent on the nail every year.
This year, in fact, with revenues doing well and negotiated player contracts (get the difference?) down for the third straight year, there has been some talk that the escrowed money might not be enough -- if every player earned the full face value of their contracts, which means the players would split that $160 million or so at the end of the season, they still might not be up to the magic 57 percent.
In the increasingly unlikely event that happens, the owners would have to write checks to make up the difference.
Now, about that hard cap
As this post's headline suggests, it's not hard to see all this as a kind of hard salary cap. Despite appearances to the contrary (all those big players negotiating all those big contracts), the NBA right now has a de facto league-wide hard cap.
Which I choose to see as tremendous good news for NBA fans, looking forward. Here's why: It takes the most divisive hard line in the talks, and makes it, instead, a question of degree. The NBA, in essence, has already won the war over the exact battle line Hunter is drawing now.
A traditional hard cap, per team, would be a big change in how we think about the game, how teams are managed. (Do you really want your star to take dollars directly from his role-playing teammates? That would be the essential tension of every team.) There would be implications for competitive balance and the like, as in the NFL, where hard caps send good players all around the league every off-season.
But it would not be as big a change in how much players are paid. They are capped now.
But in the bigger scope of this debate, what had looked like a looming fight over a cut-and-dried issue of principle -- hard cap or no -- is really more a question of to what degree the existing hard cap might be extended to the team level.
That question had once seemed loaded with implications about how much players might make in total. A hard cap, it seemed, might make players earn less in total. But the existing hard cap already shows that the league is willing to guarantee players a minimum percentage of basketball-related income.
If the owners will continue to guarantee a certain percentage, the players will make the same, as a group, no matter how miserly GMs and owners may become. To my way of thinking, that means the biggest question left on the table seems to be not whether or not players can thrive under a hard cap, but instead what kind of hard cap -- the one we have now, or a different one with a team element.
If the hard cap is not really the most contentious issue, what is? Not surprisingly, money. More specifically, what percentage of basketball-related income will fund that hard cap?
That's a tough fight, too, but it's one of degree, not one of religion.